These sees Bloomberg Business Week with Carol Messer and Tim Stenebek on Bloomberg Radio.
Americans are facing a massive retirement shortfall, and potential cuts to Social Security benefits could make matters worse. A recent report from Vanguard found that the average balance for Vanguard to Find Contribution Plan participants was roughly about one hundred and twelve thousand dollars at the end of the of last year. The median, so we're talking about half below half above, was a little over twenty seven thousand dollars.
Flip over to Fidelity Investments, the average four oh one K balance JESS was one hundred eighty two hundred dollars in the first quarter of twenty twenty three. So a little perspective on kind of what the general public who have four oh one ks our retirement plans.
And as Bloomberg Susian Wooley recently noted, workers are finding it harder to save for retirement even as the amount they need keeps rising. Bloomberg actually crunched the numbers from a Charles Schwab survey showing that the average savings target in the US is now one point eight million from one point seven million a year ago. But that's kind of an eye popping number there when you see that guy.
Yeah, and that's certainly our audience right right in terms of the scale. So let's get into it what you really kind of need to be thinking about and some of the concerns and trends we're seeing when it comes to retirement planning with us, And she certainly is thinking about individuals and their financial wellness is Betterment CEO, Sarah Levy. She joins us in New York City or from New York City. Sara, good to have you here with us.
Let's do the big picture. You know, certainly the Bloomberg audience and our surveys show a higher number when it comes to retirement planning. But you know, we gave you some perspective from Vanguard and Fidelity in terms of, you know, average retirement plans. What are you guys seeing when it comes to retirement planning, savings and stresses?
So I think I'll start with your last word, stresses, because I think that's really the operative word. And you know your framing is exactly right right, which is pensions are no more and there's uncertainty around social security and so sort of the employees are being left holding the bag, and the opportunity that we see is that this stress can be alleviated by employer support. And so, you know,
we do a lot of research. Our business covers both retail consumers as well as a four to oh one K product, and so we see sort of both sides of the conversation. And when we talk to our retail customers, you know, their concern is, I don't know where to start.
I have a ton of you know, current demands, and retirement feels really far away, and so I think, you know, where we see the opportunity is almost what's old is new again, which is employers have an opportunity really to step in here and fill the gap and support their employees.
And more than an opportunity, I would actually say, you know, a moral imperative to step in and really support employees, not just with current compensation, but with long term kind of financial support and planning and thinking.
Something that's been a big topic this fall has been the resumption of student loan repayments on the federal side. How do you think that is going to impact savers when it comes to retirement.
Well, that is a huge question. There's one point seven trillion in student loan debt outstanding in this country, and it is the top worry for most, certainly millennials and Gen Z and so this is a really big issue. You know, now that inflation has started to come down, we're seeing some more optimism from the retail sector, and particularly given that unemployment is remaining low. So, you know, knock on wood, the FED is sort of threading the
needle there in a great way. But I think what we're seeing is that the primary reason that employees don't contribute to retirement plans is because they have student loans to pay down and they just don't have an extra dollar.
And so I think the most interesting thing to watch is going to be how the regulatory environment sort of ties these two concerns for folks together, right, which is, how do they link the four to one K and student loans and help employers again support a journey for employees that might be about paying down debt and might be about saving for retirement. But wherever you are on the personal journey, both the government and your employer should be able to support you and meet you where you are.
If you've got an employer who's going to help you with that. And the reason I bring that up, Sarah, two individuals that I helped this week who are in work situations. They're working, they make money, but they're basically like independent contractors, and so they aren't with a company that helps them with a four oh one K. And I feel very blessed to be with companies that do or have done. And you know, I look at your background.
You've worked at Disney and Viacom. I'm assuming that they had plans that kind of helped you along the way. There's got to be something better that we can do as society to get individuals since at this point not a lot of them are going to have pensions. Who knows about social security some other type of planning for retirement. How do we do that?
Well?
I think at Betterment we're taking one of the first steps, which is acknowledging and recognizing that fifty percent of workers in this country work for small and medium sized businesses, and that is the group that isn't supported. Exactly to your point, I worked at major organizations where they supported a four one K. But what we see is the six million small and medium sized businesses, eighty or ninety percent of those businesses don't offer retirement solutions to their employees,
and what's going on? And I think, you know, this is one area where the government, I think is doing great work, both at the federal level and at the state level of really putting in kind of new markers and new requirements sort of stayed by state to look employers. This is no longer an optional benefit. This is a
required benefit, even if you have a small business. And by the way, solutions like Betterment and they're a handful of others who offer this in an incredibly affordable way, subsidized by the government to get started, and there's really no excuse, I think for employers not to be offering, you know, a delightful, you know, digital affordable solution in this area.
Many of your customers are affluent millennials. How are you advising them in this market as well as this economy.
So year to date, I think what we've really seen is that cash is king right. The good news, you know, for us is we serve customers both on the investing side and on the cash side, and savings has been a really nice haven sort of high yield cash accounts. A lot of the digital players, including betterment are offering very high yields. We're currently offering a five point five
percent yield. What we've seen is we've said to customers, if you're jittery about what's going to happen in the markets, let the money sit on the sidelines in cash and get a guaranteed return with principal protection and with access to that capital. So that's been really I would say the theme for the first six months of the year. Over the summer, we've started to see sort of signs
of life in the investing sector in particular. You know, today was obviously an interesting day for the FED to say, you know, maybe we're on a pause for a minute here and let's see how the tightening had, you know, plays through in the market. And so what we're seeing is some beginnings of investor optimism as inflation has cooled. And I would say the evidence for that is flows into ETFs. So July and August in the market at large saw fifty billion in inflows each month into ETFs,
which is up five x from January. So again just to see that trend line, it's still, you know, it's still relatively low from a historical basis. So I think we're in early innings, but that's what we're watching. And our recommendation and advice is always about long term diversification and not to gain the market, not to try to time the market. But the average investor, it should just be invested. Our view is be invested and whatever you can save is better than nothing. Don't be intimidated.
I'm curious because you we were talking about the flows into those ETFs, and as people have been so hung up on money market funds and higher yields there, do you think that money is maybe bodes well for the broader stock market if you're seeing flows like that.
Look, I don't like to predict the stock market. I think what we what we preach. I know a lot a lot of folks. Do you know again, what we preach is. I don't pretend to know better than the rest. But I think that dollar cost averaging is always a good idea. So, you know, for my for my money, I think having a plan, sticking to your plan, remaining diversified and being in the market is always sound advice, sort of regardless of the uh, you know, of the
of the moment. Shall we say, all right, we're going.
To leave it On that note, listen, great to catch up with you. Have a great weekend. I really appreciate it. Better meant CEO Sarah Levy joining us there in New York City. You are listening and watching Bloomberg Business Week
Carol Master along with Jess Mettin. You know, but it's different, right, and I do think about I think it'll be interesting to see if government, if officials start to look at that connection between student debt, right and lack of retirement savings, because there's got to be a connection.
There has to be, And it's astounding when you think about just the average amount of debt debt Americans do carry from obviously going to college.
Yeah, I'd remember with the tipping point when all of a sudden, student debt was more than credit card debt, and like it just caught everybody's attention,